Black and Buono Blog

For the estimated 11 million homeowners burdened with an underwater mortgage, a federal policy change could be good news. Starting in June, if you decide to do a short saleto avoid foreclosure, you may not have to wait for months to hear back from your bank after submitting an offer from a potential purchaser.

Instead, if your loan is owned by either Fannie Mae or Freddie Mac, you can expect a response within 30 business days, with a final decision no later than 60 days. If you don’t hear back during the first 30 days, the bank will be required to send you weekly updates telling you precisely where the holdups are and when they are likely to be resolved.

None of this is typical of short-sale procedures today. Banks and servicers that don’t comply will face monetary and other penalties.

The mandatory time lines are being imposed by the Federal Housing Finance Agency, the regulatory overseer of Fannie and Freddie in conservatorship. Short sales, an important alternative to foreclosure, involve the lender or loan servicer agreeing to accept less than the full amount owed by the borrower.

Though they can be complex and messy — and can take anywhere from several months to more than a year to complete — short sales are turning into a mainstay of the real estate market.

The time required to complete short sales is still far too long. The 30-day and 60-day mandates address just one of the key points of delay in the process, but regulators promise a series of additional steps in coming months to speed transactions. They include clearer guidelines on borrower eligibility, property valuations, compensation for lenders holding second liens and mortgage insurance issues.

The whole process will still take longer than traditional sales. For clients seeking to do short sales today, the general estimate is five to six months from offer to closing. After June, assuming the new federal rules and penalties work, the process might be shortened by only a month.

The takeaway for potential short sellers: Be aware of the new moves afoot to streamline the process, but don’t expect miracles.